Is Airbnb good for your investment property?

Is Airbnb good for your investment property?

The Airbnb accommodation phenomenon has taken the world by storm with the concept of privately owned homes used as hotels to profit home owners. Since inception in 2008, Airbnb has launched in over 191 countries and over 65,000 cities worldwide. The Airbnb model may not be for every second-home investor, but it can be a lucrative arrangement.

Downfalls of short-term rentals for your investment property

As with having any tenants in a rental property, challenges can arise for landlords. With a traditional long-term tenant, a damage deposit as well as work and prior landlord references are required to obtain a unit. When using Airbnb, home owners do not receive a damage deposit (few request security deposit) or any prior references. Instead, through Airbnb, home owners see profiles and possibly reviews and pictures of the guests. Prior to accepting a rental, they can communicate to determine fees, and if the guests will be a fit for the rental.

Home owners also have the option of renting the entire unit or renting a room within a home. Typically, these renters might be more considerate sharing a home with the owner.

On the other hand, there have been multiple horror stories of Airbnb homes being ruined by house parties, drugs and other criminal activities. (Don’t forget the home owner is usually the house cleaner too, unless you use a third-party service.) Since inception, Airbnb has mitigated some of these concerns by implementing a Host Protection Insurance program.

Lastly, there are regulations in some cities making it difficult to use Airbnb. For example in Vancouver, BC, zoning bylaws state you cannot rent your property for fewer than 30 days unless you are a licensed bed and breakfast. Not only do some cities restrict short-term rentals, but many strata councils have additional rules to restrict Airbnb rentals or short-term rentals in their buildings.

Benefits of Airbnb income

The biggest benefit of using your investment property as an Airbnb is the profitability, which you traditionally wouldn’t receive from a long-term tenant. Competing with hotels for guests, most home owners rent their homes below average hotel room rates. Yet the rates are more than they would earn from a long-term tenant, if you broke down the cost per day.

The income received through short-term rentals could be enough to cover the high turnover expenses, such as day-to-day cleaning and consumables (shampoo, toilet paper, etc). This can be a great helper to offsetting your mortgage, especially if you are earning more than your monthly mortgage amount. This can give home owners cash in their pockets: meaning they can increase mortgage payments to pay off a mortgage sooner, or save up for an extravagant vacation (don’t forget to book it with Airbnb!)

A global company has researched the average cost of 3-bedroom homes sold in the last 12 months in different cities across the world, as well as the average time in which it would take to recoup your entire property value by the average rent on Airbnb. Here are the findings: